In process: KSE index could shoot up if military offensive successful

Topline Securities report states stock market could touch 33,000 by December.

Kazim Alam June 16, 2014
A majority of analysts believe that by doing away with the on-again, off-again negotiations, the government has provided the equity market with a fresh, long-term impetus. PHOTO: FILE


The stock market reacted with thin trading volumes on Monday to the latest military offensive in North Waziristan against the Taliban.

Although the Karachi Stock Exchange (KSE)-100 Index lost 79 points during the day, a majority of analysts believes that by doing away with the on-again, off-again negotiations, the government has provided the equity market with a fresh, long-term impetus.

Speaking to The Express Tribune, Elixir Securities CEO Junaid Iqbal said the government’s resolve to tackle the issue of terrorism in an aggressive manner will be taken ‘very positively’ in the short term.

“In the long term, the stock market will judge the military operation on its consistency and success,” he noted while listing three key factors that will determine the operation’s success. These are minimising the expected backlash from militants in urban areas, avoiding collateral damage during the military operation, and capturing terrorist leaders and bringing them to trial, Iqbal said.

The KSE-100 Index has posted a return of 18% since the start of 2014. Iqbal said his brokerage house’s current target for the KSE-100 Index is 33,500 points by the end of December.

According to research conducted by Topline Securities, Pakistan has conducted as many as seven military operations since 2007, including three full-scale offensives against local and foreign militants.

The first operation that took place in South Waziristan in 2004 left a positive impact on the stock market, with the benchmark index gaining 2% in the subsequent five trading sessions. Similarly, the second operation, which took place in Swat in 2007, resulted in the benchmark index surging 5% in the subsequent five sessions.

Although the KSE-100 Index declined by 7% in the first five sessions following the Swat operation conducted in 2009, Topline Securities believes the benchmark index went down mainly due to prevailing violence in Karachi and negative results posted by blue-chip companies at the time.

“We expect successful military operation to positively impact the overall security situation in the country. With better-than-expected economic indicators, we can see the index going as high as 33,000 points by December,” it added.

According to KASB Securities Research Analyst Farrukh Khan, the ‘peace dividend’ of the operation against militants will be ‘extremely significant’. In fact, he suggests that any significant dips in stock prices should be taken as an opportunity to accumulate long-term positions.

Noting that foreign portfolio investment has driven the equity market upwards in recent months, Khan said it may become ‘reticent’ against the backdrop of the military offensive. Pakistan has received FPI amounting to $244 million since the beginning of the calendar year.

“Many foreign portfolio managers we have spoken with opine that peace talks were unlikely to be successful. However, an open-ended military offensive will create a climate of uncertainty in the interim,” Khan said, noting that a macro recovery is linked to peace that is a precursor to the much-needed foreign direct investment.

Published in The Express Tribune, June 17th, 2014.

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Chasm | 8 years ago | Reply

Going by the photo, things look pretty laid back at the KSE. Is that on a busy day or a slow day?

economist | 8 years ago | Reply

Only $244 million inflows & 18% return! Indian markets got $20 billion till 2014 start & they too up around 20%

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